China nears new rules for bankrupt banks
(Reuters)
Updated: 2006-02-07 10:52

A new bankruptcy law for China is likely to be approved this year, paving the way for new rules to tackle failed banks, insurers and stock brokerages, the China Securities Journal said on Tuesday.

While China has shut down dozens of its lenders, the passage of a revised bankruptcy law has been held up by debate over what to do with laid-off workers.

"The bankruptcy law is expected to get approval this year and the enactment of regulations aiming at handling the bankruptcy of financial institutions will not be far off," the newspaper said, citing official sources.

"The law will enable relevant agencies under the cabinet to formulate regulations to handle bankruptcies among commercial bank, insurance firms and stock brokerages," the newspaper said.

Tackling the bankruptcy of financial institutions needed special rules as their failures could affect the nation's social stability and financial security, the newspaper said.

Central bank officials have called for the passage of the revised bankruptcy law to protect creditors, including banks.

China's current bankruptcy law was adopted in 1988 and is widely seen as outdated.

China tightened its grip on financial institutions after the 1997/98 Asian economic crisis, fearing problems with debt-ridden banks and trust firms could trigger financial turmoil.

It has shut down dozens of trusts and banks, including Guangdong International Trust and Investment Corp. (GITIC), Hainan Development Bank and China Venturetech Investment Corp. and a number of credit cooperatives.

The government has injected $60 billion in capital into three major state banks to help shore up the debt-laden sector as global giants are due to gain unfettered access to the market by late 2006 in line with World Trade Organisation commitments.